Question

The neoclassical model of labour supply is based on a number of assumptions. List and discuss any five assumptions that you think are most unrealistic for modelling the labour supply decisions made by workers in a developing country such as South Africa.

Answer 1

Neoclassical model of labour supply is the microeconomic model in which income gained from mass production and services with activities involving maximum utilization of the labour factor with average working hours including possible leisure time. The five assumptions based on labour supply decision of workers of South Africa are as follows:-

1)   The unlimited labour supply with the increase in the wage rate is the first assumption. It is not possible in the developing countries like South Africa. The other developing countries in asian may be accept this assumption because of availability of labour surplus. Existence of many industries need many labourers to help in the production units in South Africa. But the nominal wage rate will not be in a increasing rate frequently like arithmetic progressive rate.

2) Training all the semi-skilled workers will be the priority one in the procedure of modelling the labour supply. In South Africa, the labourers are not fully equipped and updated with latest technology. This assumption is quite unrealistic in order to use the skilled labourers in producing the quality goods and services in many industrial sectors.

3) Entrepreneurs should invest large amount in the industries which in turn creates the situation of attracting more employment oppourtunities. But the bad financial condition and the very high rate of interest restricts the entrepreneurs to invest in the industries.

4) Lot of migration of work force from rural areas to urban cities will pave the way of large employment opportunities. This is due to rapid growth of industries. Thus centralization of work force will be concentrated in the cities also. But due to less number of industries in South Africa, this is not the possible one to create.

5) Income inequality can be abolished by means of ability of work force to run their happy life with sufficient income. But in the rural areas and urban areas same work force faces the same condition without any development of their economic development. Lack of existence of industries is the main reason for creating ample rate of employement opportunities in South Africa.